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U.S. retail results are worst in four decades

By ANNE D'INNOCENZIOThe Associated Press

Thu., Feb. 7, 2008

NEW YORK–U.S. retailers delivered more evidence of a stumbling economy today as merchants reported their weakest January performance in nearly four decades, extending a malaise that has deepened since the holiday shopping season.

The sales figures made it clear that consumers wrestling with high gas and food prices, a slumping housing market, an escalating credit crisis and a weakening job market retrenched further, buying mostly necessities even when redeeming their holiday gift cards.

“Clearly, this is a reflection of a very difficult environment for the consumer,” said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. “It looks like consumer spending is stalling.”

Nonetheless, shares of a number of retailers rose as many either backed their earnings forecast or even raised guidance, signalling that they were able to control their inventories.

The UBS-International Council of Shopping Centers preliminary sales tally of 43 retailers rose 0.5 per cent in January, well below the original 1.5 per cent forecast. The results followed an anemic 0.7 pace in December and were below last year’s same-store sales average gain of 2.1 per cent.

Michael Niemira, chief economist at the council, said January’s performance was the weakest ever, according to records that go back to 1970. It is based on same-store sales, or sales at stores open at least a year.

Thursday’s results extended a streak of news that showed more signs of consumer strain. Consumers’ spending accounts for two-thirds of economic activity, and their outlays appear to have stalled from an already slowing pace seen over the past year.

Wal-Mart noted in its release Thursday that gift card redemptions were below expectations and that customers appear to be holding gift cards longer and “using them more often for food and consumables rather than discretionary purchases.”

While consumers have had to contend with rising gas and food prices and a slumping housing market, there are signs that the job market is becoming a concern as well.

On Friday, the Labor Department reported that U.S. employers sliced payrolls by 17,000, the first decline in more than four years. And on Thursday, the department said jobless claims fell last week by 22,000, but the decline was smaller than expected.

And while investors are hoping the Federal Reserve can avert a recession with a series of rate cuts, some economists say the moves may be too little, too late.

Analysts also say that while the government’s proposed economic stimulus package, which offers rebate cheques for more than 100 million Americans, could help reignite spending, the lift would only be temporary.

As Perkins said, if the job market continues to deteriorate, ``all bets are off.”

Janet Hoffman, managing partner of the North American retail division of the consulting firm Accenture, agreed, noting she expects “some relief” but nothing “radical.”

“Consumers have exhausted all the avenues to get access to credit,” she added.

Retailers are expected to offer a better picture of the impact of slower sales when they report fourth-quarter earnings over the next few weeks. The retail fiscal year ends in late January.

What might salvage earnings for some retailers is their efforts to control inventories; they’re also expected to pare merchandise offerings further in the coming months to respond to slowing demand.

Still, Wall Street profit expectations have been lowered in recent weeks — Perkins noted that fourth-quarter earnings growth for the 130 retailers he tracks is expected to be down 5.4 per cent, compared to a 1.2 per cent growth expected at the beginning of December.

Wal-Mart, the world’s largest retailer, reported a 0.5 per cent gain in same-store sales. Analysts surveyed by Thomson Financial had expected a 2.0 per cent increase.

The company said it continues to do well with staples like groceries but that home furnishings remain weak. Wal-Mart noted in its news release that gift card redemptions were below expectations and that customers appear to be holding gift cards longer and ``using them more often for food and consumables rather than discretionary purchases.”

Within the department store sector, J.C. Penney Co. had a 1.9 per cent decline in same-store sales at its department stores, though the results were better than the 6.3 per cent Wall Street expected.

Upscale Nordstrom suffered a 6.6 per cent same-store sales decline, much worse than the 0.7 per cent decrease expected.

Limited Brands reported an eight per cent drop in same-store sales in January, worse than the 6.9 per cent forecast.

Gap Inc. posted a two per cent decline in same-store sales, better than the 6.5 per cent decline projected by analysts.

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